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Contracting in the Health Sector – Key things to consider

While contracts for the supply of health services are similar to other contracts for the supply of services, there are several clauses that will need careful consideration to ensure that they meet the specific requirements of the sector. In this article, Paul Middlemiss, who regularly advises clients on large scale, technical, and commercial contracts sets out key considerations for those contracting in the health sector.

Intellectual property 

Protection of intellectual property rights and the agreed terms of use of IP is key in these contracts.  Contracting parties should consider:

  1. whether the supplier, if a head contractor (and who may have developed particular processes, knowhow, and methodologies, and have documented these) will retain all intellectual property rights in its existing materials, processes, knowhow, reports, documents, databases, guidelines and computer programs.
  2. if it is necessary for the supplier, if a subcontractor, to give the head contractor a non-exclusive, non-transferable royalty-free licence to exercise (for the term of the contract, and only to the extent necessary for it to perform its obligations in the head contract), all intellectual property rights in any materials, reports, documents, databases, knowhow, processes, computer programs and guidelines provided under the subcontract.  This licence should include limitations on disclosure of that intellectual property and the sublicensing of it to others;
  3. How new intellectual property developed by either party for the purposes of the contract is to be owned and licensed ,and each party’s rights and obligations in relation to jointly developed intellectual property;
  4. If the purchaser of the services has particular Intellectual property agreed to be used by the supplier in the delivery of the services under the contract, whether similar provisions to those above should be included in the contract to protect the purchaser’s intellectual property rights.

Confidential information

For suppliers with intellectual property, knowhow or confidential information (including systems and care pathways they have developed to give better patient outcomes, and operational guidelines) the limits and restrictions on the use and disclosure of its confidential information need to be clearly set out.  The Purchaser will also naturally want limits on the use and disclosure of its confidential information.

Privacy (of patient information)

For suppliers and purchasers of health services, requiring compliance with privacy legislation and codes of practice will naturally be a key clause in the contract.

Variation 

These contracts will need to spell out to what extent the contract can be varied.  For example, if there is a Government directive, or the purchaser of the services wishes to simply change the way in which it purchases services, and/or the scope and nature of the services to be provided.  A related issue will be whether that gives the supplier a right to exit the contract on a period of notice, if the variation is unacceptable to it.

Force majeure

The contract should spell out how extraordinary events affecting performance (force majeure) are dealt with.  This may include a normal force majeure clause with either party having the right to terminate the contract if the force majeure occurs for more than an agreed period of time.  The Covid-19 pandemic has demonstrated the extent to which the delivery of services under service contracts can be entirely prevented or adversely affected by such events.  The purchaser and the supplier will need to agree on what events are within the agreed definition of force majeure, what are exclusions from that definition and on the processes to be followed and rights to accrue, if force majeure applies.

Subcontracting 

Given the usual need for suppliers of services to use others to help provide the services, many of whom are independent contractors, suppliers will need to check that the contractual restrictions on subcontracting allow them to use their proposed personnel and allow them within reasonable limits to employ further personnel, if required.

Service description

A detailed service specification should be included  setting out the purchaser’s service requirements that will need to be met by the supplier.  This will include eligibility to receive the services, the location where the services are to be provided, the clinicians or staff permitted to provide the services, how referrals are received and dealt with, access to the services, when services are deemed to start and end, provisions for the transition of services at the end of expiry of a contract (if the services are not completed by then), service quality and standards, reviews and service evaluation, staff experience and competency requirements (including relevant vocational registration).  There will also need to be consideration of how the provision of the services will be monitored and evaluated.

Limitations on liability

It is common for either party, or sometimes only the supplier, to limit or exclude liability for various kinds of loss, e.g. consequential or indirect losses, and losses of profits .  There may also be a cap on liability to an agreed amount, and a requirement that any claim be notified within a set period.

Termination  

Parties should consider whether the contract will give each party the right to terminate the contract in whole or in part on (say) 3 months’ notice.  This allows more flexibility in termination if the relationship has broken down – without the need to establish a sufficient breach of contract.

Conflicts of Interest 

In the health sector these can quite commonly occur (because of linkages the supplier may have with other suppliers or persons) so  there should be provisions in the contracts to deal with actual, potential and perceived conflicts of interest which need to be considered carefully.

Dispute Resolution  

In standard commercial contracts there is usually an escalating dispute resolution clause starting with discussion, mediation and then arbitration.  In these kinds of relational contracts which are likely or intended to continue into the future despite disputes that may arise, discussion and mediation are key items to endeavor to preserve the relationship between the parties so that the services can continue to be delivered.  Therefore the parties should ensure that these clauses are included with timeframes that are workable, and binding arbitration only be used as a last resort.

Format  

Typically a number of the above provisions are set out in a front end contract while other standard clauses are set out in an attached set of standard commercial terms and conditions.  There are usually also a number of appendices setting out the service requirements, service quality and standards, invoicing requirements, information requirements and the like.  With the contract incorporating various documents , the contract also needs to set out the order of precedence between the various documents forming the contract, in the event of any inconsistency between them.

Where health and disability services are being purchased (for example by Government purchasers such as DHBs or ACC, health insurance companies, or by other suppliers seeking to purchase services under a subcontract , legal advice is essential.  If you are contracting in the health sector, Harkness Henry’s experts are able to provide you with specialist advice.

 

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

PLM-1

Paul Middlemiss

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